Commercial Leases: Letter of Intent

Oftentimes the first step towards creating a commercial lease agreement is a document called the "letter of intent". Once the tenant and landlord have agreed upon the most basic terms of the commercial lease, have come to some basic mutual understanding, and both are ready to proceed with a commercial tenancy one of two things will happen:

Commonly, the landlord will offer up an intial draft of the lease agreement for the perspective tenant to go over.

Alternatively, either party may write up a letter of intent which basically states that the tenant (or landlord if he or she drafts the document) is serious about committing to a lease and ready to move forward.

This section will cover in detail what the purpose of the letter of intent is, how to prepare a letter of intent and how to respond to one.

A letter of intent summarizes the key terms of a leasing deal that’s still subject to negotiation. A well-crafted letter is a road map that will not bind either party to the deal, but it will reflect everyone’s serious intent to get this lease signed.

Tenants occasionally want to write their own, non-binding letter of intent, to confirm preliminary understandings and set the stage for negotiations. It’s important to make sure that the letter does not turn into an enforceable contract, like a lease.

Knowing how to respond to a letter of intent, especially one that might bind you to its terms, is key to keeping lease negotiations open. A landlords binding letter of intent needs to be addressed immediately, lest you end up being bound by its terms.